We noted that the SPX went into the Minus One/Plus Two sell position on February 16 and it’s been straight down ever since, with 4 consecutive down days and with the index shedding 280 points.
To recap, the 3 Day Chart turns down with 3 consecutive lower daily lows. This satisfies the Minus One part of The Swing Method.
Then, when an item traces out 2 consecutive higher daily highs (intraday, not closing), as long as the 3 Day Chart remains pointing down, that satisfies the Plus Two part of the strategy.
As you can see, this method is not based on PRICE, but on time.
That said, often the phenomena dovetails nicely with intermediate resistance (or support) in the case of a Plus One/Minus Two BUY setup — which is exactly the opposite of the sell pattern.
We initiated SQQQ at 38.38 on the setup and have trimmed on the move up.
On Wednesday, it closed at 48.00.
Ever since the secondary high on Feb 2, stocks have been in trouble.
They are now inside of a powerful wave down.
The drop yesterday below the prior low in January has coincided with a dramatic decline, which may indeed be a crash.
Eerily, the correlation to the 1929 and 1987 crash flagged last month in our report Three On A Match remains virtually identical.
Falling below their January lows confirms an important top is in and that a crash may occur.
The DJIA and Dow Transports have triggered a Dow Theory Bear market signal. This indicates the economy is also in danger at a time when the Fed is in tightening mode.
A generation of traders used to the Fed riding to the rescue to save the day will find the Fed put is kaput.
Their hands are tied as they are prisoners of their own device.
In the past two powerful declines of 2018 and 2020, the Fed printed the stock market back up.
They cannot do so now because inflation is at a 40 year high. As well, they are burdened with a massive $9 trillion dollar balance sheet.
IF they should try to monetize with this much inflation, the dollar would tank along with the economy.
The U.S. would likely go to war before they let that occur.
That is the danger of the current oil and match situation with economics and geo-politics.
The market never would have V’d off the March 2020 low but for the Fed.
This morning’s Breakaway Gap is a stunning display of how the news breaks with the cycles, not the other way around.
Players waiting for confirmation of a break below the January swing low to initiate additional bearish positions had scant time to do so late yesterday… but there was time to add to Hit & Run’s VXX call positions.
As offered in this space on Tuesday, two cycles of 540 degrees down projects to the 4020 region.
IF the SPX is carving out an A B C decline as shown below, a Measured Move second leg ties to 4020 as well.
Breakage below 4000 opens the door to a full blown crash to the 3500-3600 region and the pre-Covid crash highs.
In sum, the SPX shows a droop Head & Shoulders pattern… ominously, the same pattern present in September 1929.
Conclusion. In November we wrote that the stock market would get hit hard in January 2022 with the potential to crash.
The wild ride for 2022 is just beginning. It has and will wreak havoc as a reversion to the mean to Buy & Hold plays out as volatility reigns.
To those who don’t believe the market cannot be timed… to some degree… my cycle work suggests a low by early to mid-March is in the cards.
The nature of the rally out of that low will tell us much about the balance of the year.
Yesterday I tweeted on the Hit & Run Private Twitter Feed that the SPX had turned its 3 Month Chart down.
Even in a bear market, this should perpetuate a low over coming days/weeks… even if it’s only a knee-jerk intermediate reaction.
However, that low could be hundreds of SPX points lower.
